This copy is for your personal non-commercial use only. To order presentation-ready copies of Toronto Star content for distribution to colleagues, clients or customers, or inquire about permissions/licensing, please go to: www.TorontoStarReprints.com

Greed, not Osama, took down the economy

In the photograph, the one that hangs on the wall of Mark Standish’s office in lower Manhattan, the co-CEO of RBC Capital Markets Corp. is seen walking away from downtown, across the Brooklyn Bridge. Resolute.

“I remember looking at the one person who was looking back as opposed to looking forward, which was a guy with a camera,” Standish says now. “He was taking a picture of the two towers just before the two towers fell.”

Two hundred thousand tons of steel. Falling. Four hundred and twenty five thousand cubic yards of concrete. Collapsing. Fourteen acres of glass. To dust.

Standish, in the company of coworkers, evacuated to RBCCM’s backup facility that September morning, the morning that broke bright blue until Osama bin Laden shook the “throne of America” and “hit hard the American economy at its heart and at its core.”

It wasn’t true.

Nor was it true, as then president George Bush would proclaim in a budget speech, that the terrorist attacks pushed America over the economic brink. Nor was it true that the financial district would be abandoned, the evidence to the contrary presenting itself in RBCCM’s move to larger downtown premises at 3 World Financial Center, just to the west of Ground Zero, a perch that gives Standish command over a 72,000-square-foot trading floor, a staff that has grown close to fivefold, and a daily view of all that did not come true.

“I could have guessed at a lot of different things,” he reflects, noting the arrival of new condominiums and the conversion of older commercial buildings to residential in a part of town where the sidewalks traditionally rolled up at 9. “But I would not have guessed that the financial district, downtown Manhattan, would be a phenomenal place to live 10 years ago . . . I would have said forget it.”

There’s a message in that. Just as there is a message of optimism in the arrival of a Shake Shack at Battery Park City where you can get a Wall-nut Street “concrete” — frozen custard with nuts and cherries — up to 11 o’clock at night. (The lineups are long.) And a message of resilience rising in Frank Gehry’s undulating 8 Spruce Street. At 76 stories, 8 Spruce is billed as the tallest residential tower in the western hemisphere, and it is this, a decade after the terrorist attacks, that sensuously alters the famous skyline.

YOU MIGHT BE INTERESTED IN...

“Resilience” may seem a strange note to strike after a week of cratering stock markets and debt downgrades and a desperate U.S. Federal Reserve Board unprecedentedly pledging to keep interest rates at historic lows for a fixed period, at least to mid-2013.

But it takes an awfully long time to truly see what there is to see.

Only last month did the U.S. Bureau of Economic Analysis release its revised GDP data for 2001. “These data are the ones that will be likely to enter history,” says economist Gail Makinen, who penned a one-year economic retrospective for Congress during his tenure as a co-ordinator for the Congressional Research Service. Only now do we learn that what was reported to be U.S. GDP growth of 1.3 per cent in the first quarter of 2001 was, in fact, a contraction of 1.3 per cent. As Makinen notes dryly, a change of 2.6 per cent “is a pretty large revision.”

“The United States economy was struggling to find a footing after the tech bubble collapsed,” says Avery Shenfeld, chief economist for CIBC World Markets Inc. “9/11 didn’t cause a recession. It did cause a major disruption in economic data over a very short period of time.”

Writing in The New York Times two days before the terrorist attacks, James Grant examined the weak economy and the multi-trillion-dollar drop in stock values that had been pegged to shares in companies that, as Grant wrote, had no visible means of support. “Were investors out of their minds?” was the question he posed, one that students of fantasy stock inflation and historic bubbles didn’t need answering. The NASDAQ, which poked above 5,000 in March 2000, closed on Sept. 10, 2001 at 1,695. Grant called the ’90s boom “the gaudiest on record.” The unprecedented, decade-long expansionary cycle enjoyed in the U.S. had already come to an end.

That’s not to say there weren’t economic consequences from 9/11. There were acute short-term shocks: airlines, tourism, cross-border trade. And a long-term hit: “The main legacy of 9/11 is the debt associated with fighting two wars and the ongoing security costs that tie up resources that could otherwise be doing something that leaves us feeling better as opposed to protecting what we’ve already got,” says Shenfeld, who pegs those costs at about 10 per cent of the U.S. debt, which stands at $14.3 trillion.

YOU MIGHT BE INTERESTED IN...

Looking back, the signal economic events that were momentous and defining were just becoming known.

Jeff Skilling had suddenly departed Enron Corp. in August 2001, the stock having fallen by more than 60 per cent from the beginning of the year. Enron whizzed its way toward a $1.2-billion (U.S.) write-down in October (an event, by the way, that did not cause Standard & Poor’s to alter the company’s credit rating).

In this month’s Harper’s magazine, Thomas Frank calls Enron “one glorious fireball of fraud,” the primary component of which was deregulation. Therein lies the link, Frank posits, between Enron and the 2008 financial crisis, thus making the energy company the standard- bearer for an epoch.

Get more stories like this one in your inbox

Take your time with the Star's biggest and best features with our Weekend Long Reads newsletter.

Federal Reserve Board chair Alan Greenspan spent the waning days of August 2001 at a Reserve Board getaway in Jackson Hole, Wy. A series of interest rate cuts were already in play, cuts that would make it “easier for people to borrow and spend,” Greenspan later trumpeted. The rate-cutting strategy became more aggressive post 9/11. The Reserve Board chair was fixated: broad home ownership was the goal, and “wealth,” and thus consumer spending, would thenceforth be measured not by household income but by inflated household asset valuation.

It was a phantom prosperity, as was painfully learned. In his 2007 biography, Greenspan too politely acknowledged the role that the “loosening” of mortgage credit terms for subprime borrowers played in heightening financial risk. “Vaporization,” would have been a more apt term. Within the year, Lehman Brothers would declare bankruptcy, the era of bailouts arrived (again), and we all became comfortable with the lexicon. (The Troubled Asset Relief Program would forevermore be known as TARP, and even the innocent were initiated in the ways of collateralized debt obligations.)

If there is to be a lost decade — and it is an “if” — 2007 will mark its beginning, believes the CIBC’s Shenfeld.

This, strange as it sounds, is a blessing.

Sept. 11 bears little economic baggage.

“9/11 to me was a very significant social event,” says Mark Standish. “In hindsight, it was not a significant financial event.”

Before that dreadful day, the day that fell at the end of what he remembers as a very sunny summer, Standish would walk through the World Trade Center concourse to get to work every morning, and again at end of day to take the PATH train back to New Jersey.

Eight months before the terrorist attacks, he celebrated his birthday at Windows on the World with his wife and 11-year-old son. Months later he found the coat check chit from the restaurant in the pocket of a suit. His son had asked so many questions. What became of the staff? Was everyone okay?

Standish grows introspective. Of course the world has changed. “The last 10 years have really been America waking up from essentially a dream,” he says, “a lovely dream.”

More News

Top Stories

More from The Star & Partners

Copyright owned or licensed by Toronto Star Newspapers Limited. All rights reserved. Republication or distribution of this content is expressly prohibited without the prior written consent of Toronto Star Newspapers Limited and/or its licensors. To order copies of Toronto Star articles, please go to: www.TorontoStarReprints.com